Tuesday, January 18, 2011

Barack Obama versus Ludwig von Mises

President Obama has an Op-Ed in today's WSJ calling for a review of all government regulations. In his commentary surrounding this review, the views of the president and those of the great economist Ludwig von Mises could not be in greater contrast.

President Obama begins his Op-Ed by writing:

For two centuries, America's free market has not only been the source of dazzling ideas and path-breaking products, it has also been the greatest force for prosperity the world has ever known. That vibrant entrepreneurialism is the key to our continued global leadership and the success of our people.

But throughout our history, one of the reasons the free market has worked is that we have sought the proper balance. We have preserved freedom of commerce while applying those rules and regulations necessary to protect the public against threats to our health and safety and to safeguard people and businesses from abuse.

From child labor laws to the Clean Air Act to our most recent strictures against hidden fees and penalties by credit card companies, we have, from time to time, embraced common sense rules of the road that strengthen our country without unduly interfering with the pursuit of progress and the growth of our economy.

This "balance" that the President speaks of can be viewed as a "middle-of-the-road" policy. It is not unbridled free markets, but free markets with restraints. This is what Professor Mises said about such a middle-of-the-road policy:

There is simply no other choice than this: either to abstain from interference in the free play of the market, or to delegate the entire management of production and distribution to the government. Either capitalism or socialism: there exists no middle way.

Mises' view may appear at first harsh, but upon reflection it can be understood that he is making a very important point. Mises is saying that any intervention in the economy leads to other interventions, until the full economy is engulfed in a sea of regulation, which we can not call anything but socialism. Indeed, President Obama, in a way, is acknowledging Mises view, when he calls for a review of regulations.
The President writes:

Sometimes, those rules have gotten out of balance, placing unreasonable burdens on business—burdens that have stifled innovation and have had a chilling effect on growth and jobs

But how can it be any other way, when we attempt a middle-of-the-road policy? Consider an obvious situation, price controls. Once price controls are placed on an economy shortages will develop. The regulation won't stop there. The government then generally steps in to relieve the shortages by rationing goods, but the price controls and rationing lead to black markets, which results in a police force formed to "protect" against the black market. To be effective, the police force must expand surveillance of citizens to catch the black marketeers. The black marketeers counter by using even more clever ways of operating, which leads to even more loss of privacy, as the police use ever more intrusive methods to attempt to catch them. Interventionism never stops at the first regulation. Indeed, every new regulation is like a starter pistol being shot off, signaling for more regulations.

In the United States, we have had many starters guns that have gone off resulting in a growing police state that comes at us from many directions. The drug enforcement authorities, in their attempt to support the interventionist prevention of certain drugs from being distributed and sold in the United States, have grown into such a monster that now banks must report all cash transactions over $2,000 and report any "suspicious" activity.

From the securities industry to pharmaceutical industry and all other industries, rules and regulations continue to grow, but for every new regulation their is an attempt by free market operators to find ways around the regulations and thus new regulations are implemented to prevent this circumvention. And thus we have the creep toward socialism that Mises warns of. It doesn't happen overnight. It is a creep. But, it only goes in one direction, toward more regulation, not less.

President Obama is fooling himself, and the people, if he thinks his order to review policies will result in a halt in this creep. Yes, for propaganda purposes, regulators may eliminate one or two rules here or there, that are particularly silly, but the government isn't going to stop banks from reporting cash transactions, and the government isn't going to tear down the regulations that make it extremely difficult for a company to go public with the trading of its shares, nor stop intervening in the economy in most of the multitude of other ways it does.

This declaration by President Obama is simply a propaganda scheme because the people are beginning to realize what Ludwig von Mises warned about, that the creep is always toward more regulation and ultimately socialism. There is no middle-of-the-road policy. The new regulations to plug holes in the old regulatory scheme will just keep on coming.

President Obama's Op-Ed is an attempt to misdirect the people from the inevitable march towards socialism, and away from free markets, when interventionism is chosen as the path, But the fact that he has chosen to even create the illusion that he is going to stop the trend towards more regulation is an indication that he understands it is going on and that the people understand it is going on, he is, in fact, acknowledging that Mises is right and his Op-Ed is really something of a tribute to Mises, a statue, if you will.

21 comments:

Obama's call for a review of all regulations seems decent enough, as it would seem to be open to repeal regulations that are just preposterous.

But either it is a means of trying to placate the right, or a means of introducing even more new regulations. Nobody buys that Obama has any sympathy for a 'free market' that happens to be regulated, as it would make him a Capitalist according to the more widespread accepted definition of it.

Either way, it is a means of distraction, a red herring.This is a matter of principles. A differentiation between individualism and collectivism. Between rights and liberties inherent to the individual or civilian, or rights and liberties granted by government.

If we accept that government's function is to protect people's rights and liberties, then the only right they would have is for regulation against genuine forms of fraud and/or aggression. Protecting people from their own stupidity or gullibility is NOT part of that equation (such as banning toys from McDonalds meals, to name an example)

The difference between capitalism and socialism is who holds the power. Since Obama favors a government that gets to dictate how, why, and when it interferes in the so-called "free market", the power lies completely with government and is therefor socialist. It is granting privileges, not protecting rights.

(from the Mises bio link you provided):"Entering the University of Vienna at the turn of the century as a leftist interventionist, the young Mises discovered Principles of Economics by Carl Menger, the founding work of the Austrian School of economics, and was quickly converted to the Austrian emphasis on individual action rather than unrealistic mechanistic equations as the unit of economics analysis, and to the importance of a free-market economy."

No matter how correct and insightful von Mises may have been in his understanding of the way in which government intervention distorts the economy, we don't live in the world according to von Mises and we're not likely to. One way that influential players in the market get around regulations is to pay the regulators, in various ways, to look the other way and give them a pass. This is what our federal tax code does. It's a cost of doing business no different, in principle, than the costs involved in cleaning up after a hurricane or a snowstorm. The added costs are integrated into the final costs of goods and services. In that sense, regulations are inflationary. But there are many people who would be even more impoverished than they are now if the unbridled free market were operative. True, a more general and widespread impoverishment awaits down the road as a result of these interventions, but few people are willing to live in greater poverty today for the sake of other people living in greater abundance tomorrow.

This is the pattern for every single Obama speech. (1) Praise freedom. (2) Bury it.

I defy you to find any Obama speech in which he doesn't start out in the first couple of paragraphs praising free markets and capitalism, often denying that he's a socialist, and then switching gears and continuing on for another 15 minutes to 1 hour reciting a shopping list of violent, coercive acts he wishes to perform in order to "fix the problems" which he attributes to freedom.

The speeches of Dubya were hardly any better ... the part at the beginning where he praised freedom was slightly longer and more enthusiastic-sounding, but the the overall substance of any of his speeches was identical to the fascist, "let's go threaten and kill someone in the name of goodness" speeches of Obama.

Wow. I’m a little shocked that most of you really believe there is no middle ground. To me it’s an insult to our intelligence and ability to adapt. Tell me, how do you protect yourself from your own stupidity and ignorance when Dow Chemical for instance decides it’s ok to poison our water supply and there‘s no one to stop them? Maybe we should go back to using DDT? Or allowing the banks to steal ALL of our money? Do we even live on the same planet? You all sound very educated but this is far from rocket science. Greed will rule in a world free of regulations. So won’t pollution and poor health. That’s what got us where we are. No matter how much you’d like to blame Obama.

Actually, thanks to Rachel Carson millions of people in impoverished nations have likely died due to a lack of DDT, or rather what it prevents, malaria.

“To only a few chemicals does man owe as great a debt as to DDT.In little more than two decades DDT has prevented 500 million humandeaths due to malaria that would otherwise have been inevitable.”– National Academy of Sciences, 1970

Wow, you really need to get up to speed anonymous 3:22. Dow Chemical would be sued and made bankrupt in a free-market society that respects property rights if they harmed persons or property. But instead they now get statists to create "environmental regulations" that allow them to pollute based on quotas or "acceptable levels" and face a small fine when they go over the "legal limits" (when the regulators don't look the other way). Or they (like ALCOA did with sodium fluoride) could partner with governments to put poison in our drinking water as a way to dispose of industrial waste. DDT was demonized in a faulty study causing hysterical regulations that have resulted in millions of deaths from malaria since. Fractional-reserve banks couldn't steal any money without state protection and state supported central banking cartels in a truly free-market banking system.

You are right, this is not rocket science. Greed rules the world of statist regulations.

" Tell me, how do you protect yourself from your own stupidity and ignorance when Dow Chemical for instance decides it’s ok to poison our water supply and there‘s no one to stop them?"

Who own's the water? Ohhhhh...it's "publicly" owned. Well maybe therein lies the problem.

"Greed will rule in a world free of regulations."

You sound like you're scared of your own shadow. Just because you can't imagine a social order in which freely-interacting individuals conduct themselves peacefully *and* selfishly doesn't mean that it can't happen. The shortcoming is yours, perhaps. Might I suggest some Rothbard to cure you of you ignorance and thus your fear?

how do you protect yourself from your own stupidity and ignorance when Dow Chemical for instance decides it’s ok to poison our water supply and there‘s no one to stop them?

Perhaps the owner of the water supply will protect his property. How do you protect yourself from people stealing your shoes?

Maybe we should go back to using DDT?

Great idea. Millions of people have died from malaria since this relatively benign chemical was banned. Don't let the bedbugs bite.

Or allowing the banks to steal ALL of our money?

Why would you trust your money to a bank with a reputation for stealing money?

Do we even live on the same planet?

Apparently not!

Greed will rule in a world free of regulations.

There will be plenty of regulations, but they won't be government regulations. They will be regulations mutually agreed upon by free entities engaging in free trade. That's a world where the best method of enhancing your wealth is to provide a product or service desired by other people; a true win-win situation.

anonymous at 3:22 hasn't responded again and is obviously losing the debate.

He/she said:

"when Dow Chemical for instance decides it’s ok to poison our water supply and there‘s no one to stop them"

What he/she doesn't realize is that it's the "middle of the road" environment that has allowed DOW chemical to do their polluting. Dow chemical HAS polluted our water supply, along with many other companies, and no one stopped them... even with the 10's of thousands of regulations we have on the books.

When the government sets the regulations and standards, they end up helping to facilitate the very wrong-doing that these regulations are set up to prevent.

In a true free market... with a small watchdog government that punishes criminal activity... instead of a "get involved" big government that tries to prevent criminal activity... everyone affected by companies like Dow (most Americans) could sue for restitution... putting Dow out of business. Then the next company that came along would pay attention to the example made of Dow and would rethink it's own regulations to prevent this from happening to them.

Instead, our gov lets Dow pollute up to a certain limit... or only slaps their wrist when they get caught screwing up our environment. And as long as Dow continues to pay off the regulators it will continue to happen.

Yup, I'm the DDT guy! I was just trying to make a point by the way not to get caught up in a debate on DDT. (I still disagree by the way. How many people die of cancer every year? I'll bet you'll jump on me and say DDT doesn't cause cancer. Again missing the point.) So apparently you do believe in some regulations?! Thank you! But that's not what the article says. I guess you believe the people will regulate themselves? The proof is already in the pudding is it not? (Robo-signing, natural gas fracking) And privatizing the water? Are you kidding me?! Is this science fiction? Is the air next? I would bet that it is. Better hold onto your guns people. And I didn't realize you had the power to keep your water from leaving your property. Or evaporating for that matter. And ArbutusJoe I can imagine it. I just don't see it. I'm sorry but I don't agree. And anonymous large companies (coca-cola) ARE known to pollute the environment. It's nice to be rich so everyone will look the other way. And are the banks regulating themselves? To say yes is to deny the current crisis. Look I don't believe government is the answer to everything but I don't have faith in the money hungry few who own these institutions either. Sorry, but I'm Middle of the Road. Like the Pretenders :P

"Mises' view may appear at first harsh, but upon reflection it can be understood that he is making a very important point. Mises is saying that any intervention in the economy leads to other interventions, until the full economy is engulfed in a sea of regulation, which we can not call anything but socialism."

Mises' argument is logically flawed, and George J. Schuller pointed this out in 1950:

It's really not a hard concept in understanding the ownership of land. Well, bodies of water are just land via another medium. And we already own the air around our houses. No, you don't own every particle of H2O, and evaporation will cause a supposive loss of property, but rain will bring it back. It's not science fiction. It's extension of principle.

I mean, how do you stop the animals from taking soil particles to other people's property? Sure, it occurs over a logarithmically slower rate, but it still occurs. Same principle.

It's called thinking critically and looking for patterns. The pattern of private property is well understood in the physical realm (there are debates on whether it extends into the metaphysical realm i.e. intellectual property) and can be understood with only a couple hours of study.

Of course the banks aren't currently regulating themselves. Why would you when you have another entity that cannot fail scapegoat this aspect for you?

Large anonymous companies is oxymoronical. Somebody knows who everybody in the company is, and we know who leads the company.

We do not abandon the concept of justice, merely the concept of a government. One can exist without the other.

I like the idea of a self-regulating society. But letting lawyers and judges (ex-lawyers)decide who has or has not violated the rights of others sounds pretty scary to me. Judging an act to be a crime after the fact, when there is no law to guide (so to speak) could be disastrous. Would this self-regulating concept apply to individual behavior too? I would hate to find out one day that parking too far from the curb was a violation of another's rights. Would the judges become respecter's of persons? A world without properly conceived, judged and enforced laws, including environmental or business laws, would soon fall into anarchy.